The fixed income market largely treaded water during the third calendar quarter. However, there were periods of volatility over the three month period, as investor sentiment was impacted by mixed global economic data, questions regarding future central bank monetary policy and an increasing number of geopolitical issues. The yield on the two-year Treasury rose from 0.47% to 0.58% over the quarter, as expectations for Federal Reserve Board (the “Fed”) rate hikes increased. In contrast, the yield on the 10-year Treasury declined slightly from 2.53% to 2.52%, partially driven by several periods of risk aversion. As expected, the Fed announced that it would further taper its purchases of longer-term Treasuries and agency mortgage-backed securities at its meetings in July and September. In each case, the Fed stated that it planned to pare its purchases (quantitative easing) by a total of $10 billion per month. Quantitative easing concluded in October 2014. In its official statement following its September meeting, the Fed stated, “it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored.” All told, the overall US bond market, as measured by the Barclays US Aggregate Index,1 gained 0.17% during the third quarter.

During the third quarter of 2014, the Fund posted a net asset value total return of -0.80%, and a market price total return of -1.82%. The Fund, on a net asset value total return basis, underperformed the Barclays US Aggregate Index (the “Index”) which, as previously stated, returned 0.17% during the quarter.

In contrast to the first six months of the year, the Fund’s spread sector exposure detracted from performance during the third quarter. In particular, security selection and a substantial overweight allocation to investment grade corporate bonds were negative for returns. This largely occurred in September as investor risk aversion increased. Within the investment grade space, the Fund’s exposures to metals and mining, energy and banks were a drag on performance. The Fund’s overweight to high yield corporate bonds detracted from results, as did an overweight to commercial mortgage-backed securities (“CMBS”).

On the upside, the Fund’s yield curve positioning was additive to performance during the quarter. Our yield curve flattening bias was beneficial, as we had an overweight to the long end of the curve and an underweight to the short end of the curve.

There were no significant changes made to the Fund’s sector positioning during the quarter. That said, we tactically managed the Fund’s duration and actively bought and sold various corporate credits. We also adjusted the Fund’s CMBS and collateralized loan obligation (“CLO”) exposures.

Outlook

In our view, the US economy has enough momentum to continue expanding, although the pace will be far from robust. We expect the Fed to begin the process of normalizing monetary policy in 2015, and we believe it will do so in a gradual and measured fashion. Economic growth in Europe remains weak, and the European Central Bank is expected to remain accommodative as it looks to stimulate growth and ward off deflation. Elsewhere, we are closely monitoring China’s economy given signs of a more modest expansion.

Turning to the fixed income market, geopolitical and global growth concerns have driven down US Treasury yields and pushed credit spreads wider. We currently have a neutral to somewhat positive outlook for the credit markets. In particular, we continue to find attractive opportunities given relatively more attractive spreads.

Portfolio statistics as of September 30, 20143

Top ten countries4

Percentage of total portfolio assets

United States

72.94%

Brazil

5.33

United Kingdom

5.11

Cayman Islands

4.61

Mexico

2.91

Netherlands

2.70

Norway

1.62

Canada

1.22

Sweden

0.94

Luxembourg

0.63

Total

98.01

Portfolio composition

Corporate bonds

78.98%

Asset-backed securities

3.59

Commercial mortgage-backed securities

6.53

Collateralized loan obligations

0.61

Mortgage & agency debt securities

2.99

Municipal bonds

2.61

US government obligations

1.75

Non-US government obligations

1.02

Common stocks

0.05

Preferred stocks

0.09

Short-term investments

1.93

Options purchased

0.07

Cash and other assets, less liabilities

-0.22

Total

100.00

Credit quality5

Percentage of total portfolio assets

AAA

0.0%

US Treasury6

1.8

US Agency6,7

2.4

AA

2.5

A

12.8

BBB

56.4

BB

12.7

B

1.5

CCC and Below

0.8

Non-rated

7.3

Cash equivalents

1.9

Other assets, less liabilities

-0.1

Total

100.0

Characteristics

Net asset value per share8

$15.99

Market price per share8

$14.47

NAV yield8

3.75%

Market yield8

4.15%

Duration9

6.16 yrs

Weighted average maturity

9.97 yrs

1

The Barclays US Aggregate Index is an unmanaged broad-based index designed to measure the US dollar-denominated, investment grade, taxable bond market. The index includes bonds from the Treasury, government-related, corporate, mortgage-backed, asset-backed and commercial mortgage-backed sectors.

2

A spread sector refers to non-government fixed income sectors, such as investment grade or high yield bonds, commercial mortgage-backed securities (CMBS), etc.

3

The Fund’s portfolio is actively managed, and its portfolio composition will vary over time.

4

The Fund does not take active currency risk; as of September 30, 2014, the Fund’s holdings in foreign fixed income securities were predominately denominated in US dollars.

5

Credit quality ratings shown in the table are based on those assigned by Standard & Poor’s Financial Services LLC, a part of McGraw-Hill Financial, (“S&P”) to individual portfolio holdings. S&P is an independent ratings agency. Rating reflected represents S&P individual debt issue credit rating. While S&P may provide a credit rating for a bond issuer (e.g., a specific company or country); certain issues, such as some sovereign debt, may not be covered or rated and therefore are reflected as non-rated for the purposes of this table. Credit ratings range from AAA, being the highest, to D, being the lowest, based on S&P’s measures; ratings of BBB or higher are considered to be investment grade quality. Unrated securities do not necessarily indicate low quality. Further information regarding S&P’s rating methodology may be found on its website at www.standardandpoors.com. Please note that any references to credit quality made in the commentary preceding the table may reflect ratings based on multiple providers (not just S&P) and thus may not align with the data represented in this table.

6

S&P downgraded long-term US government debt on August 5, 2011 to AA+. Other rating agencies continue to rate long-term US government debt in their highest ratings categories.

7

Includes agency debentures and agency mortgage-backed securities.

8

Net asset value (NAV), market price and yields will fluctuate. NAV yield is calculated by multiplying the current quarter’s dividend by 4 and dividing by the quarter-end net asset value. Market yield is calculated by multiplying the current quarter’s dividend by 4 and dividing by the quarter-end market price.

9

Duration is a measure of price sensitivity of a fixed income investment or portfolio (expressed as % change in price) to a 1 percentage point (i.e., 100 basis points) change in interest rates, accounting for optionality in bonds such as prepayment risk and call/put features.

Any performance information reflects the deduction of the Fund’s fees and expenses, as indicated in its shareholder reports, such as investment advisory and administration fees, custody fees, exchange listing fees, etc. It does not reflect any transaction charges that a shareholder may incur when (s)he buys or sells shares (e.g., a shareholder’s brokerage commissions).

Disclaimers Regarding Fund Commentary – The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the period noted. The views and opinions were current as of the date of this press release. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the Fund and UBS Global AM reserve the right to change views about individual securities, sectors and markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund’s future investment intent.

Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. Any Fund net asset value (“NAV”) returns cited in a Fund Commentary assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. Any Fund market price returns cited in a Fund Commentary assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund’s Dividend Reinvestment Plan. Returns for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and other distributions, if any, or on the sale of Fund shares.

Investing in the Fund entails specific risks, such as interest rate, credit and US government securities risks as well as derivatives risks. Further information regarding the Fund, including a discussion of principal objectives, investment strategies and principal risks, may be found in the fund overview located at http://www.ubs.com/closedendfundsinfo. You may also request copies of the fund overview by calling the Closed-End Funds Desk at 888-793 8637.

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